_____ a Swiss Subsidiary Follows the Practice of Recording a Liability

Multiple Choice

_____ A Swiss subsidiary follows the practice of recording a liability for potential future losses at its manufacturing location (which is not insured) . The offsetting debit to income is in accordance with Swiss GAAP and is deductible under Swiss tax laws. The liability account had a balance of 500,000 francs at the beginning of 2006. During 2006, 100,000 francs were added to the account, and 40,000 francs were charged against the liability account as a result of fire damage from an accident. The Swiss income tax rate is 40%. The worksheet entry required at 12/31/06 to restate to U.S. GAAP would result in which of the following?

A) A decrease in net income by 40,000 francs.
B) A decrease in net income by 24,000 francs.
C) An increase in net income by 60,000 francs.
D) An increase in net income by 36,000 francs.
E) None of the above.